Group of investors advocates for increased use of eco-friendly methods in livestock farming
The world is grappling with the urgent need to combat climate change and preserve nature, and the spotlight is increasingly falling on Nature-Based Climate Solutions (NbCS). However, private capital deployment in these solutions, particularly in Forestry and Sustainable Land Use (FSLU), remains a challenge.
As FSLU is a nascent investment area, there is not yet an off-the-shelf pipeline for investors entering the space. This, coupled with the underfunding and underutilization of NbCS, presents a significant hurdle in driving these initiatives forward.
FAIRR, an agri-food-focused investor network with collective assets of $75 trillion, has assessed the mitigation potential and viability of 22 interventions in livestock production. Their findings reveal that nature-based solutions had a greater positive impact on greenhouse gas reductions, biodiversity, freshwater use, chemical inputs, and the flow of nutrients across ecosystems than tech-based solutions. Yet, the lion's share of funding went to tech-based interventions.
The private capital flows for NbCS, as per the FAIRR report, are limited to venture and philanthropic capital allocated to on-farm interventions addressing climate and nature impacts of the livestock sector in the US. This underscores the need for a more substantial influx of capital to meet the 1.5°C climate target, which requires $600 billion per year by 2030, while current private investment stands at about $100 billion annually.
One of the challenges in growing the market for FSLU and other NbCS is identifying and developing bankable projects and connecting them with the right financiers and investors. Complex environmental and social safeguards, uncertainty, lack of traditional finance involvement, and policy and regulatory constraints are some of the factors deterring investment.
However, there are opportunities on the horizon. Innovative finance models, such as blended finance combining upfront private capital with performance-based payments, are emerging. The advancements from COP29 and the establishment of a UN-led global carbon market framework support the monetization of carbon credits from NbCS, enhancing investment flows.
Large-scale private investments are increasing, driven by companies like Amazon, Microsoft, Google, Meta, and Salesforce launching funds and coalitions dedicated to NbCS and carbon projects. Upcoming EU policies and workshops aim to co-create recommendations to better channel financial flows to NbCS, targeting sustainable finance sectors including agriculture, infrastructure, and natural capital.
Addressing underfunding and underutilization could involve policy interventions to de-risk investments, developing standardized safeguards and verification, promoting blended finance and innovative mechanisms, scaling market infrastructure, and enhancing stakeholder engagement.
In conclusion, the key to increasing private capital deployment in FSLU lies in innovative finance structures supported by strong governmental policy frameworks, market development, and robust safeguards that together reduce investment risk and unlock the significant yet untapped financial potential for NbCS. The time is ripe for private and public sectors to collaborate and accelerate the transition towards a sustainable, nature-positive future.
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